On July 21, 2009, Satoshi had mentioned that he needed a “break” after 18 months of continuous Bitcoin development — the only explicit fatigue self-statement in the documented record, in retrospect an early foreshadowing of the 2011 departure — and asked Malmi for ideas about bootstrap applications that could help Bitcoin grow.
The following day, Malmi responded with a proposal: he suggested establishing a Bitcoin exchange service for euros. His proposal detailed pricing formulas and profit mechanisms to establish initial currency liquidity for Bitcoin.
On August 24, 2009, Satoshi answered point by point. On pricing he took up Malmi’s own formula, which used the known coin supply to set a minimum rate the exchange could always honour: “you could set a support price based on the amount of legacy currency you have and be sure you’ll have enough to meet all demands. I had imagined an auction, but it would be far simpler and more confidence inspiring to back it at a specific exchange rate.” He suggested keeping the minimum transaction size above what one computer could accumulate, so that users would have to trade with each other, and he drew a line around his own part: “I don’t want to do an exchange business myself, but it can be done independently of me.”
Pricing by production cost entered the record six weeks later, from outside the correspondence, when NewLibertyStandard derived Bitcoin’s first exchange rate from an electricity bill. Satoshi took to it: on October 16 he wrote to Malmi, “I like his approach to estimating the value based on electricity.”
Malmi did build the service, though not first. On October 8 he told Satoshi that NewLibertyStandard had just announced he was trading bitcoins for dollars, and that “Making an exchange service first seemed a bit premature for the time being.” He registered bitcoinexchange.com in December, had a prototype running by January 5, 2010, and in May reported the beta’s first transaction: 10,000 BTC sold for 20 euros by EU bank transfer. Satoshi kept advising along the way, on payment methods in February 2010 and, in July, on putting $1,000 of a donation into the exchange’s reserves.
The first sale of bitcoin for dollars therefore did not run through Malmi’s service. On October 12, 2009, Malmi sold 5,050 BTC to NewLibertyStandard for $5.02 via PayPal, about $0.001 a coin, in what is considered the first known Bitcoin-to-USD transaction. The sale is also one of the contributions the Martti Malmi biography credits to his first two years on the project.
Malmi’s service became one of the Bitcoin exchanges that opened before Mt. Gox, and none of them was Satoshi’s. What he gave them in place of running one is traced in the exchanges before Mt. Gox.
